These are not my words, but the description of the Fed and its boss, by the US president
after the FOMC lowered the Fed Funds by 0.25% yesterday evening. Whilst that outcome
was entirely expected by the markets, it clearly wasn’t a big enough reduction for Trump. As
we know, and as I have mentioned many times previously, Trump wants the dollar lower
and stock markets higher, both of which are two core elements of his economic plan- if you
could call it that!
Now of course, this is largely political too, not just for his campaign chances in 2020, but in
respect of the dollar, Trump believes a lower buck is the main route to defeating China (and
anyone else for that matter) on trade. The fact that the dollar brushed off the rate cut
yesterday is as much about the chances of another move this year as anything else; chances
which according to the latest Fed ‘dot plot’ plan would appear to have been reduced.
The dollar will reverse at some point in the future, but only when the time is right for it to
do so and not before. Trying to ‘jawbone’ it lower to solve a trade imbalance at the same
time as increasingly forcing the Fed into a highly politicized position is nothing short of
draconian quite honestly, but hey; you get what you vote for I guess! Or do you? A very
pertinent question that leads me onto looking at the UK and the pound.
So, the ‘old lady’ is poised to do absolutely nothing this morning. Given the current situation
they have little choice really and the lower inflation readings yesterday only serve to
endorse that. Meantime, the pound has continued to outperform with the GBPEUR lifting
above its 200 daily moving average, which stood at 1.1312, to as high as 1.1338 yesterday.
To better see how this one has recovered from its August 1.0724 low please take a look at
an updated chart of that below where you can see the next rebound target of note looks to
reside at 1.1391.
Since my last update, the GBPUSD has posted an interim double top, after it peaked again
just above 1.2520 on Tuesday. The price shied off that last night as another rebound stalled
at 1.2512 before slipping back into the US close, where it ended at 1.2472. Perhaps if the
price can lift above 1.2530, then it might open up a further move towards the next major
resistance level at 1.2670- a 50% retracement of the 1.3381-1.1959 move this year.
However, in terms of the immediate future, much will depend of course on what emerges
from the Supreme court judgement and the Bank of England today. If the court ruling goes
against the PM, then it could the catalyst to deliver such a move, but we shall just have to
see on that.
Elsewhere the NOK has fared better since I last wrote about it and the EURNOK is back
below 10, currently trading around 9.88 ahead of the Norges Bank policy decision this
morning at 9am. The expectation is that the central bank will keep its benchmark rate
unchanged at 1.25%, but there are many who think otherwise, looking for another 0.25%
increase. I have no view on that particular issue, but I still prefer the NOK over the EUR no
matter what happens today, in keeping with what I said previously about that.
Finally, a word about gold this morning. The price did trade to as low as $1483.50 yesterday
evening following the ‘hawkish’ Fed rate cut, but somehow resisted a breakdown through
that $1480 level. The more this level holds the more potentially important it becomes and
whilst the price of gold in USD holds up that does continue to make it an attractive store of
value in other currencies where the cost of carry is far less.
The one in particular that I have been focusing on here; the price of gold in GBP, has come
back quite a way from the highs above £1,280 and is now certainly more attractive. Indeed,
as I advocated some weeks back, taking some profits on that, I do however still see upside
here in the medium to long term, but remembering that trade is as much about the GBPUSD
as it is about the metal itself of course. Perhaps if that falls further towards £1150 then I
might be tempted again- I will keep you posted on that.
Important Economic Releases/Events Due Today and Tomorrow
19/09- 8.30am Switzerland- SNB Policy Decision
(Consensus- Benchmark Rate Unchanged at minus 0.75%)
19/09-9.00am Norway- Norges Bank Policy Decision
(Consensus- Benchmark Rate Unchanged at 1.25%)
19/09- 9.30am UK August Retail Sales
19/09- 12.00pm Bank of England Monetary Policy Decision
(Consensus 0.75% Base Rate Unchanged)
20/09- 12.30am Japan August National CPI Inflation Report